Platform Competition Under Asymmetric Information

We consider platform competition in a two-sided market, where the two sides (buyers and sellers) have ex-ante uncertainty and ex- post asymmetric information concerning the value of a new tech- nology. We find that platform competition may lead to a market failure: competition may result in a lower level of trade and lower welfare than a monopoly, if the difference in the degree of asymmet- ric information between the two side is below a certain threshold. Multi-homing solves the market failure resulting from asymmetric information. However, if platforms can impose exclusive dealing, then they will do so, which results in market inefficiency